Lloyds could win extra sell-off reprieve under Vickers review

Chancellor George Osborne under pressure to implement banking reform rapidly following final report from independent commission

The ICB's interim report in the spring raised the idea that Lloyds would have to sell off more branches than the 632 the EU has demanded - however, the final report on Monday is expected to give the bailed out bank some leeway. Photograph: Peter Macdiarmid/Getty Images

Lloyds Banking Group is expected to be offered ways to avoid selling off more branches by the independent commission on banking (ICB) in its final report on Monday. The ICB's long-awaited report may allow the bailed out bank to proceed with the sale of 632 branches, rather than a substantial additional tranche, if it is able to prove the ones already being sold off will go to a smaller banking operator.

The interim report in April raised the prospect that Lloyds would need to sell more branches than the 632 the EU has demanded. The final report is thought to raise a number of ways that Lloyds can address the ICB's concerns about its competitive power on the high street. Among them is thought to be a suggestion that Lloyds could be given some leeway if it can convince the ICB that the buyer of its branches will be able to expand the business beyond the 4.6% market share attached to the 632 branches.

Ahead of the publication of the report, the chancellor George Osborne is under pressure to implement rapidly the overhaul of major banks that will be advocated by the ICB, chaired by Sir John Vickers.

Lord Oakeshott, the former Liberal Democrat Treasury spokesman in the Lords, said: "The whole country now believes there must be radical bank reform. The real question is when." Shadow chancellor Ed Balls made a similar point, saying changes should be forced through "as soon as is sensible and practicable".

Bank shares fell heavily ahead of the publication of the much anticipated report, as markets were swept by rumours that Greece was poised to default on its debt. Barclays fell almost 10%, while the bailed out Lloyds Banking Group and Royal Bank of Scotland were each off 5%.

Legislation will be needed to implement the changes, and the financial services bill – the means by which the coalition's plans to break up the Financial Services Authority – is regarded as the fastest way to push through changes to the law.

Oakeshott said: "There must be no delay in legislation. The obvious and only way to do so is in the financial services bill. How can you possibly sort out financial regulation without including the banks?"

Balls wrote in his blog: "The forthcoming financial services bill can and should be used to get on and legislate for many of the reforms."

The Treasury said it would need to study the report before starting to think about what to implement. Even if the legislation is brought forward quickly, there is speculation that banks would be given until at least 2015 to make the changes.

Ian Gordon, banks analyst at Evolution, yesterday cited the commission, and particularly business secretary Vince Cable, for the decline in Barclays' shares. In a note entitled "How much value can one may destroy?", Gordon said Barclays was low rated not because of its balance sheet but because of a "fearful market's aversion to the perceived threat to valuation posed by the Secretary of State for Business.""Ahead of the ICB final report the political influence on bank share prices has reached a new crescendo," said Gordon, although he stressed that the changes would not be able to implemented before 2015.

The Federation of Small Business yesterday urged the government to announce reforms as quickly as possible but that banks be given the course of the parliament to reach any extra capital requirements. Vickers has said the ringfenced operations should have a 10% capital cushion and the FSB said any extra capital could be accumulated by cutting bonuses and profits.